Morgan children (NYSE: KMI) — oil and gas transportation and storage business. This is a profitable large business with a clear demand environment. But large debts and investment needs can cause problems for the company's shareholders..
When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.
What do they earn
Kinder - company, energy infrastructure manager: wide network of oil and gas pipelines and terminals. According to the company's presentation, its revenue is divided into the following segments.
Gas transportation — 62%. By types of tasks, the company's total revenue from gas is divided as follows::
- LNG transportation and interstate transportation — 45%;
- transportation within the same state - 10%;
- gas collection and processing works — 7%.
Segment profit margin before depreciation and amortization of assets — 32,7% from its proceeds.
Transportation of oil and oil products — 16%. By types of tasks and types of products, the company's total oil revenue is divided as follows::
- oil products - 11%;
- oil - 3%;
- collection and processing 2%.
Segment profit margin before depreciation and amortization of assets — 47,39% from its proceeds.
Storage of petroleum products in terminals — 13%. By type of storage, the company's total revenue from this segment is divided as follows::
- liquid cargo terminals — 8%;
- storage of petroleum products before sale — 3%;
- Tankers, conforming to Jones Act standards, — 2%.
Segment profit margin before depreciation and amortization of assets — 53,03% from its proceeds.
Production of carbon dioxide for its further use in oil production — 9%. Segment profit margin before depreciation and amortization of assets — 75,32% from its proceeds.
Almost all the money the company earns in the US, the share of foreign clients from Mexico is extremely small - 1,86%.
Arguments in favor of the company
Gas to failure. The main money the company earns on gas, so forecasts of growth in gas consumption this year will be a boon for the company. Another plus for Kinder will be an increase in demand for LNG: she is a prominent player in this field.
In view of the foregoing, we can assume, that 2022 will not be the worst year for the company, - although, certainly, anything is possible.
Gas consumption in billions of cubic feet, indicated rise and fall by sector
| Demand in 2021 | 101,8 |
| Residential sector and communications | 0,6 |
| Industry | 0,8 |
| Power supply | –1,9 |
| LNG export | 1,7 |
| Pipeline export | 0,4 |
| Other | 0,2 |
| Demand forecast in 2022 | 103,6 |
Dividends. The company pays 1,08 $ per share per year, which gives approximately 6,18% per annum. This is already a very high yield., especially against the backdrop of the recent AT dividend cut&T, as a result of which Kinder became more attractive in terms of dividends.
May be, Kinder shares will soon receive an influx of dividend investors from among the former shareholders of AT&T, who will appreciate the fact, that the dividend yield of energy companies is now very high. This, given the improvement in their business environment, makes them an attractive investment target..
By contract type, a company's Adjusted EBITDA is broken down as follows::
- "Pick or pay" - 63%, when the customer in any case pays Kinder a fixed amount, regardless of the volume of transported products. Customers also pay Kinder to book a spot in the company's logistics facilities.;
- fixed commission, but the total amount depends on the volume of transported products - 25%;
- hedging - 6%;
- the price depends on the prices of raw materials - 6%.
In general, it turns out, that almost 2/3 company's income is generated on the basis of more or less predictable and stable contracts.
Almost 2/3 the company's customers are the end users of the products: housing and communal services enterprises, large integrated energy companies and industrial enterprises. IN 78% of the company's clients a good investment rating or at least an impressive credit line.
Useful to remember, that Kinder is included in the top 10% companies S&P 500 by free cash flow yield. All of these factors add up to increase the chances of, that the company will keep its dividend at its current high level. Although, as Epictetus taught us, such things are beyond our control. So for everything 100% we cannot be sure of saving payments.
Statistics by type of Kinder Morgan customers as a percentage of the total
| End users | 69% |
| Energy producers with an investment rating and a credit line | 10% |
| Energy producers without an investment rating and a credit line | 9% |
| Resource transportation companies | 8% |
| Energy sellers | 3% |
Statistics on the investment rating of Kinder Morgan clients as a percentage of the total
| With investment grade or line of credit | 78% |
| With investment ratings ranging from BB+ to B | 9% |
| Investment grade B− or lower | 2% |
| No credit rating | 11% |
Annual Free Cash Flow Percentage by Sector
| Energy | 10,8% |
| Materials (edit) | 6,7% |
| Communication services | 6,5% |
| Finance | 6% |
| healthcare | 5,9% |
| Consumer goods | 4,8% |
| Food | 4,7% |
| IT | 4,4% |
| Industry | 4,2% |
| The property | 2,6% |
| Housing and communal services | −1,2% |
ESG. In its category "storage and transportation of oil and gas", Kinder has fairly high ESG ratings in various rating agencies.. Plus, gas is considered a relatively clean fuel., which the world will need in the process of transition to renewable energy and clean sources. So let's consider, that Kinder has a large ESG bonus, which, if it does not encourage an influx of environmentally concerned investors into its shares, then at least save her quotes from ostracism, and the accounting department - from the difficulties in finding a loan for the right amount with a sane rate.
Diversification. According to the annual report, none of the company's clients give her more 10% proceeds. This strengthens its negotiating position and, respectively, contributes to the strength of her business.
Can buy. The company is an infrastructure colossus, generating more or less stable and at the same time tangible cash flow. In addition, Kinder looks like a powerful lever of influence in the political sense.: 71 thousands of miles of its pipelines provide 40% US natural gas consumption and export. For that reason alone, someone might buy it..
Certainly, the buyer of the company may be one of the giants of the oil and gas industry, but I think, that antitrust regulators could cut this deal down. Probably, the buyer of the company will be some private fund. Private funds have recently attracted more and more investor funds, and quite possibly, that they will soon get tired of buying up unprofitable startups, - and they may well pay attention to such a traditional business, like Kinder.
What can get in the way
Accounting. The company currently has $38.495 billion in debt., of which 5.821 billion must be repaid during the year. The company does not have a lot of money in its accounts - 1.14 billion, and there are still 1.611 billion debts of counterparties. However, the amount owed is still large., although the company is gradually reducing it. It can scare off investors.
At the same time, the company spends more on dividends, what does he make: payments are 1,08 $ in year, and her earnings per share are 38,5% less. Certainly, should be considered, that a significant part of Kinder's expenses are "depreciation and loss of value of assets" - the company, as it were, does not incur a loss in money.
Some investors even consider, that these losses should not be taken into account at all when evaluating the company, pier, "these losses are paper". This, certainly, not so: loss of asset value has very real consequences, especially in the case of physical infrastructure, on which the entire Kinder business is based. Later, the company will have to fork out for the reconstruction of its facilities..
Actually, its needs for investments of this kind and so great. Means, should be mentally prepared for, that the company will cut payments to invest in refurbishing its facilities and reduce its debt burden. This is especially likely in the event of a repetition of the quarantine in the spring of 2020 and the bankruptcy of that part of the company's clients, whose affairs are not going so steadily, as we would like.
This is the main risk - after all, most investors are attracted by these shares mainly due to dividends.. So,, in the event of a reduction in payments, the fall in quotes will be painful.
Resume
In October 2020, I took these shares for 12,28 $ and prepared to hold them next 12 months for the purpose of selling 15 $ - in general, I counted on the influx of fans of passive income in these stocks. I reached my goal in November of the same year and sold shares. However, by June 2021, the stock had risen to 19 $ for pike. Maybe, I underestimated the greed of dividend lovers! Now the shares are standing 17,07 $.
By and large, I have no serious arguments against Kinder, so dividend investors, maybe, worth checking out these promotions. However, until I make an investment idea on them: Still, the possible instability of dividends worries me a lot.
